ETF Focus

Putting a New Charge in ETFs

Hundreds of funds barely trade these days. Is paying market makers the right way to generate more interest?

There's an open secret in the explosive growth of exchange-traded funds: Many niche products barely trade. A weak market for, say, an Indonesian small-cap fund or a fishing-industry ETF risks choking off whatever chance these products have of gathering assets.

The liquidity problem sufficiently worries U.S. exchanges that they've asked regulators to allow ETF issuers to pay cash incentives to some of the firms that make a market in their funds. The issue is important not only to existing, tightly-focused ETFs, but also to...